Budzinski, Brown Call on Treasury to Support American Biogas Production 

WASHINGTON, D.C. — Today, Congresswoman Nikki Budzinski (IL-13) and Senator Sherrod Brown (OH) sent a letter calling on the U.S. Department of Treasury to revise a proposed rule that excludes Inflation Reduction Act (IRA) tax credits from being used to support the conversion of biogas into renewable natural gas. Budzinski and seven other lawmakers urged the Treasury to update the proposed rule to better support family farmers, American manufacturing innovation and the waste management system. 

“We urge you to take action to revise the proposed rule in a manner that supports the conversion of biogas into a productive use and maximizes the IRA’s dual purpose of reducing greenhouse gas emissions and supporting American manufacturing innovation,” wrote the lawmakers.

Budzinski and Brown were joined in the letter by U.S. Senators Tammy Baldwin (D-WI), Debbie Stabenow (MI), Bob Casey (PA), and Maria Cantwell (WA), as well as U.S. Representatives Angie Craig (MN-02), Jim Costa (CA-21) and Jimmy Panetta (CA-19).

The full text of the letter can be found here and below:

February 6, 2024

The Honorable Janet Yellen

Secretary 

U.S. Department of the Treasury 

1500 Pennsylvania Avenue, N.W. 

Washington, DC 20220

Re: Proposed Rulemaking for Section 48 Investment Tax Credit (ITC)

Dear Secretary Yellen:

We write to you today with serious concerns regarding the Notice of Proposed Rulemaking for the Section 48 Investment Tax Credit (ITC) released by the Department of Treasury on November 17, 2023. The rulemaking contravenes the statutory language of the Inflation Reduction Act (IRA), and we urge you to take action to revise the proposed rule in a manner that supports the conversion of biogas into a productive use and maximizes the IRA’s dual purpose of reducing greenhouse gas emissions and supporting American manufacturing innovation.   

As proposed, the rule would exclude “gas upgrading equipment” from the definition of a “qualified biogas property,” require the same taxpayer to own at least a “fractional interest” in the entire unit of energy property to claim the ITC, and apply the “80/20 rule” regarding investments and the total value of the facility to qualify for the ITC. These proposed regulations create unrealistic barriers that fail to recognize common industry ownership structures and the complexities involved in projects that seek to place biogas into productive use—the intent of the IRA amendments to the ITC—rather than have the biogas disposed of via combustion or simply allowing methane to be released into the atmosphere. Failure to include “gas upgrading equipment” as qualified biogas property or to address the challenges posed by the proposal’s ownership requirements and application of the “80/20 rule” undermines this credit’s potential and will negatively impact the IRA’s potential to both reduce greenhouse gas emissions and strengthen domestic manufacturing.  

We urge you to take the following steps to address these shortcomings in the proposed rule to ensure the final regulation aligns with Congressional intent:

1. Align with Congressional Intent of the IRA and include gas upgrading equipment in the qualified biogas property that will be subject to the new Section 48 ITC.  

Biogas – also called “raw biogas” – is of limited utility. It cannot be safely stored, compressed, blended with other gases, transported, or sold. Raw biogas is relegated to on-site uses: heat generation, electricity production, or flaring into the atmosphere. Without the benefit of “gas upgrading equipment,” biogas cannot be converted into higher-value, lower-carbon, innovative products, such as renewable natural gas (RNG) that can support a reliable domestic energy source.  

Congress included Section 13102 of the IRA to amend the Section 48 ITC and broaden the credit’s applicability to a number of new technologies. In particular, we sought to incentivize investment into projects that turn biogas into a productive use, including upgrading that biogas to renewable natural gas that is interchangeable with fossil natural gas. We did this by incorporating the Agricultural Environmental Stewardship Act (AESA)  into the IRA to specify that that “cleaning and conditioning” equipment is part of a biogas system, considered “covered property” under the tax credit. “Cleaning and conditioning” equipment’s inclusion in the AESA and as incorporated in the IRA was intended to be inclusive of “gas upgrading equipment.” Counter to the intent of the law, Treasury’s proposed rulemaking contravenes the IRA by excluding “gas upgrading equipment,” which is interchangeable with “cleaning and conditioning” equipment, from the definition of a “qualified biogas property.”  

Remove the requirement that the same taxpayer own a “fractional interest” in the entire unit to claim the ITC to recognize the complexity of the emerging domestic RNG industry. 

Biogas is derived from organic wastes that come from different sources, such as landfills, agricultural operations, and wastewater treatment plants already present throughout the U.S. RNG projects facilitate the interchangeability of biogas with fossil natural gas. Congress’ intent in drafting biogas section 48 ITC in the IRA was to allow common industry ownership structures to take advantage of the ITC to incentivize biogas-derived RNG development, deployment, and utilization. Unfortunately, the proposed rulemaking does not recognize the diversity of ownership structures and the need for flexibility to address the complexities inherent in the emerging RNG industry.  Instead, the proposed rule would require the taxpayer to own at least a fractional interest in the entire unit of energy property to claim the ITC. 

Turning biogas into a productive use requires different processes and equipment that often involve multiple owners due to regulatory constraints, capital costs, and other business considerations. For example, landfill owners can be municipalities or view ownership and collection equipment as vital for their Environmental Protection Agency (EPA) compliance and view methane gas capture as a core operation. Landfill gas collection systems are almost always owned and operated by the landfill operator while the RNG project that upgrades the landfill gas to a marketable, high-BTU fuel, requiring significant capital investment, is often owned and operated by a separate entity.  Anaerobic digesters at wastewater plants or used to address food waste or manure from animal agriculture operations have similar complexities in ownership structures making the proposed rule equally unworkable. Treasury’s regulations should respect the complexity of projects that might use the ITC, from landfills to anaerobic digesters.

Remove the “80/20 rule” requirement to support continued growth in the biogas and RNG industry.

As proposed, this regulation would also generally apply the “80/20 rule” for investments to qualify for the ITC, which requires upgrades to existing properties to account for at least 80 percent of the overall value of the facility. This “80/20 rule” doesn’t comport with the complexities and realities of the biogas and RNG industry and discourages the use of existing infrastructure for the production of cleaner energy systems. The negative impact of this requirement would be especially stark with respect to biogas projects where existing digesters and landfill gas collection systems can have significant value. 

New investments in equipment to turn that biogas into a productive use, such as cleaning and conditioning equipment to allow for the production and sales of RNG, may struggle to reach the 80 percent threshold. Applying the “80/20 rule” for ITCs seeking to incentivize growth and new energy sources only serves to deter projects from moving forward and is not supported by the IRA statute. Treasury’s application of the “80/20 rule” are not aligned with the business realities of these facilities. We urge you to revise this proposal to ensure the “80/20 rule” does not create a barrier to RNG.

We urge you to take action to correct these errors as the rulemaking process moves forward to ensure Treasury’s final rule remains in line with congressional intent, strengthens the capacity for biogas and RNG, and helps maximize the decarbonization goals supported by the IRA. Thank you for your attention to this matter.

Sincerely, 

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